South African taxman goes after crypto traders to rein in taxes
The tax agency is scrutinizing individual trading and tax data to find defaulters and issue them assessments. To crack down on non-compliance, SARS is also leveraging artificial intelligence (AI) technology.
The South African Revenue Service (SARS) is beaming its regulatory torch on crypto traders in South Africa. These traders are now receiving notices that their tax affairs are under review and are required to provide certain information to regulators.
Dive In
- South African law firm, Webber Wentzel, quoting information from various crypto exchanges, said that the tax authorities have been sending notices to crypto traders.
- These traders were cautioned that failure to provide the requested information could be considered a criminal offense under the Tax Administration Act.
- Per a senior associate at the firm, Margaret Vermaak, the tax agency requests an individual’s transaction details and trading records.
- These details are then cross-referenced with the agency’s database to check if the individual filed their taxes as required by law on profit made on trades.
- In cases where the individual did not file their taxes, SARS issues an assessment to find the true value of the traded assets to tax them.
- In addition, SARS is leveraging artificial intelligence (AI) to crack down on non-compliance.
💡 Be smart: What is artificial intelligence?
Artificial intelligence (AI) is the simulation of human intelligence processes by machines. In its broadest sense, it is a set of computerized processes that have been programmed to mirror what humans would usually do.
AI has been deployed by countries around the world to manage tax compliance, collect and process taxes, educate users and identify irregularities. It helps authorities reduce labor and time to analyze tax information in large quantities.
- However, the full extent of the deployment of AI by SARS to find non-compliant crypto traders is still unclear.
- Defaulters face penalties of up to 150%, Veermak added.
Key quote
- Vermaak said on television:
“It's fairly recently that we understand that taxpayers have been receiving notices. SARS [is collecting] information from third parties [including] asset exchanges and they can request transaction details such as whether an individual bought and sold crypto or whether or not they made [a] profit from it.”
- She added:
“This [collected] data can then be cross-referenced to a taxpayer’s personal records to see to the extent there is a mismatch between whether profits were made but not declared.”
Why this matters
- In South Africa, many taxpayers reportedly believed that crypto profits are not taxable, but SARS has clarified that they are.
- Crypto assets are treated as financial instruments under the Income Tax Act. This subjects crypto users to capital gains and income taxes, and sometimes value-added tax (VAT).
- According to SARS, any sale, exchange, or disposal of crypto assets is considered a taxable event.
- Profits from crypto transactions can be taxed at rates up to 45% for individuals and 27% for companies.
- South Africa became one of the first African countries to grant crypto a legal status when it added crypto companies to a list of accountable institutions in 2022.
- This move paved the way for proper crypto regulations in the country.
- 138 crypto companies have since received operating licenses in South Africa.
